The bull market in stocks just turned 8, and a pullback is the best thing that can happen

And a pullback might be the best thing that can happen next,
even though that may sound counterintuitive.

After all, most investors — especially those piled into
increasingly popular index funds — gain only when the stock
market goes up. And they have done just that since November 9,
with the S&P 500 up 9% after the election and before
President Trump's administration has had a chance to implement
any of its plans seen as being pro-business.

But the speed of the most recent rally, which brought the Dow
Jones industrial average above 21,000, made US stocks even more
overvalued by most measures and has some strategists eager for a
pullback.

In February, the Dow
recorded 12 straight days of closing at all-time highs, one day
short of the longest streak.Andy
Kiersz/Business Insider; Gluskin Sheff

"Some kind of consolidation or pullback would be perfectly normal
and, honestly, probably the best thing if you're bullish," Ryan
Detrick, senior market strategist at LPL Financial, told Business
Insider. "You don't want to see a blow-off top to 22,000 or
23,000 in a short time frame," he said, referring to the Dow.

The Dow's move to 21,000 from 20,000 in 24 days matched the
fastest all-time thousand-point move, recorded in May 1999. In
February, the index recorded
12 straight days of closing at all-time highs, one day short
of the longest streak.

"Don't think that investors don't want a pullback," said Quincy
Krosby, market strategist at Prudential Financial. "They want to
burn off some of that froth, that enthusiasm, and they want
valuations in stock prices to pull back in," she told Business
Insider.

8 years and counting

The benchmark S&P 500 index hit a closing low of 676.53
on March 9, 2009. It has gained 250% since then.

Old age does not kill bull markets. But amid the second-oldest
one in history, and with some measures of
valuation and
investor sentiment at levels most recently seen at previous
market tops, the
parallels to past bubbles are being drawn.

Professor Jean-Paul Rodrigue of Hofstra University is the creator
of the following illustration of stages of a bubble. We asked him
to describe the current status.

"I have given up a long time ago trying to make any precise
assessment about market bubbles, particularly their blow-off,
since a lack of rationality is more the norm than the exception
these days," Rodrigue said.

Based on the stages he outlined, though, the market is most
likely somewhere between "enthusiasm" and "delusion," before the
top. It's just impossible to know how long it'll take to peak.

Many stock market strategists, though, say it's too soon to talk
of a bubble because they see the economy underpinning much of the
gains.

That doesn't mean a sudden drop of, say, as much as 10% won't be
unnerving, he said.

"I'm going to guess that a lot of fear will come in a hurry
because we've been so spoiled by all the moves" higher, Detrick
said.

The Trump administration — which is promising tax reform,
deregulation, and heavy spending to boost the economy — has
taken credit for the rally and described it as a scorecard
for the White House. And it could also be the trigger for its
next leg lower.

"If there's any deviation that looks as if he's being forced to
abandon tax reform, perhaps from his own party — those who are
saying how will they pay for it — this market is going to have to
recalibrate," Krosby of Prudential said.

'Fear is your friend'

Based on the
market's history of eventually recouping its losses, a smart
move in such moments has been to look for opportunities to buy.

"Widespread fear is your friend as an investor, because
it serves up bargain purchases," said Warren Buffett, Berkshire
Hathaway's chairman, in his most recent
letter to shareholders.

Buyers taking advantage of the dip would be a sign that the
pullback is not a longer-term decline, Krosby said.

The other would be if US economic growth holds up.

"I have a very hard time imagining that this bull market is about
over right now," said Randy Frederick, vice president of trading
and derivatives at the Schwab Center for Financial Research. "If
you look across the board at the economic data, there's almost
nothing in the economic realm that's not at least moderately
positive."